Aspen Woolf explains why Brazil will play a key role in their future.
Brazil. The place is booming: a fast-growing consumer market, investment-grade status, huge foreign reserves, surging commodity exports and agricultural productivity to rival the US. Foreign investment has tripled in a decade.
Brazil was one of the last countries to fall into recession and one of the first to return to growth. Despite global financial and economic crises the economy contracted by just 0.3% last year, while its stock market rose a staggering 83% and the real currency 33%. The IMF forecasts the economy to grow by 5.5% this year and 4.1% next year. This year will see a surge of foreign investment – $45 billion. That’s up 74% on last year.
So why is Brazil considered such a good investment? Well, last year, Brazil became a middle class country. The new middle classes are now consumers… and they’re spending. For the first time in the country’s history the domestic population now has the chance and confidence to take mortgages. The current total mortgage value in Brazil represents only 2% of the GDP. To put it into perspective, the same number in the UK is a whopping 75%. The Brazilian government now forecasts that the Brazilian mortgage market will grow 600% by 2014, reaching 12% of the GDP. All of a sudden, Brazilians are racing to buy property. Property prices are starting to see stratospheric growth, especially in the northeast. As credit continues to open up, the Brazilian consumer will be a force to be reckoned with.
Brazil is energy independent. The Tupi and Lara fields, situated 800km off the Brazilian coast, are home to America’s largest discovery of crude oil deposits since the Cantarell fields were found in Mexico in 1976. The fields in Brazil have huge potential and are estimated to hold up to 10 billion barrels of oil. The Financial Times refers to the reserves as “Brazil’s ticket to the world’s VIP energy club”.
In short, Brazil suddenly seems to have made an entrance onto the world stage. Its arrival was symbolically marked last year by the award of the 2016 Olympics to Rio de Janeiro; two years earlier, Brazil will host football’s World Cup. You should have exposure to Brazil in your portfolio.